12 horrible pieces of insurance advice

When you have an insurance claim, the last thing you want to discover is that you didn’t buy the right coverage. While it’s easy to point the finger at agents, coverage gaps could be a two-way street.

Sometimes friends and family members offer bad advice, including tenuous, illogical and even illegal strategies, hoping to save you a few bucks. But the eventual losses can be huge.

“When people shop for insurance, a lot of times they’re looking for the best deal,” says Ron Reitz, an independent insurance adjuster and president of Quality Claims Management in San Diego.

We asked some insurance veterans about the bad advice they’ve heard over the years. Here’s what makes them cringe.

Lock up all insurance policies and other important documents in a safe deposit box.

Worst insurance advice! Do not keep your life insurance policy in a safe deposit box. If yours is the only name on the safe deposit box, no one but the executor of your will can get into it without Power of Attorney. If your life insurance policy is locked in there, your beneficiaries will have to wait until the estate is opened by a government entity and an executor is appointed.

•If you want the assurance of having important documents locked up, buy a fire-safe box

“Just make sure documents aren’t stored in a place where they can be lost in a flood or fire,” says Reitz. With today’s technology, there’s no excuse not to scan everything and create electronic copies of important papers that can be put on disks or in other storage devices.

•You don’t need flood, earthquake or other disaster insurance

If an earthquake destroys your home, you won’t recover a penny unless you have an earthquake insurance policy. The same rule applies to floods.

Decisions about flood insurance should be based on your proximity to a body of water that could overflow, not whether the area flooded before. On the plus side, if you’re in a low-risk area, your policy will cost less while still providing the maximum protection.

•Get the best rate even if you have to tell lie a little

It might be tempting to fudge the truth on a life insurance application, especially if you have a serious health condition. “Don’t do it,” advises Steven Modell, president of Modell Brokerage Group in Wayne, Pa. “Not only is it insurance fraud and a felony, but it could prevent your beneficiaries from receiving the death benefit.”

•Base your home insurance policy on the real estate value of your home

Experts recommend setting the structural limit of a home insurance policy on what it would cost to rebuild the home if it were destroyed, not the real estate value. Trouble is, the rebuilding cost is a subjective number.

•Set your dwelling limit low

Some insurance agents try to give customers the lowest premium possible in order to close the sale.

“One of the ways they’re doing it is by underestimating the value of the dwelling and slapping a 100 percent extended coverage endorsement on the policy,” explains Bach. “Most policies have four separate categories of coverage which dwelling, contents, other structures and additional living expenses. Three of the four pay a percentage of the dwelling, so if you lowball the dwelling value because you have 100 percent extended coverage endorsement, you’ll be underinsured for your contents, other structures and additional living expenses.”